Bri

If the balance is over 5,000 then the non-responsive would indeed need an annuity as well.

Got a client, sole prop filing a K-1 as a 100% partner. (Had a partner through 2019, that guy's gone/paid etc.) Sponsors CB and 401k. K-1 shows about 74,000. Cash balance credit is a flat 150,000, but he's done enough cushioning in prior years that his MRC is only around 46,000. Max is hundreds of thousands higher, and he's not near his 415 limit (this is first year I've seen in five where he's been below 401a17 in Earned Income). Sponsor says he'd like to deduct 100,000. Obviously that exceeds his Earned Income so I'd think this is a nondeductible contribution. But he could make a 4972(c)(7) election to not owe any sort of excise tax. I guess the thing I need clarification on is, what stops him from looking at his overall income for the year (taxable investments, perhaps) and use that as something to deduct the remaining 26k of the 100k against.... I suppose it might have to do with the fact that the other income is passive and therefore any claim for a deduction against THAT income isn't an ordinary 162 expense of the business. Am I close, crazy, or somewhere in between? Thanks! -bri

And I suppose the contract with the recordkeeper will spell out exactly where their fault would lie in relying on the participant without trustee authorization, too.

If the mistaken deposit wasn't really deferrals, then forfeiting it out from the wrong account shouldn't suddenly make it deferral money you couldn't later use, just because it had a bad label on it.

Why not just contribute the missed earnings for themselves and pay the naturally dinky 5330 tax? (This might not even be a Title I plan, right?)

I think it's going to be in your basic plan document, in terms of what contributions are permitted - and in this case I'm referring to different types of QNEC. Our document vendor had it at one point that a boring X% to everyone QNEC was always permitted to fix a test. But if you wanted to target the QNEC, the adoption agreement had to have the box checked off providing for QNECs in general

How about an -11g amendment to allocate the additional 10% to HCE 1 and the NHCE on top of a nominal stated contribution of 15% to everyone? Plan doesn't have to fail to do an -11g. The new benefits would be nondiscriminatory.

And of course, make sure your plan document doesn't contain language requiring it to cover EVERY member of the controlled group. (There's nothing STANDARD about a standardized plan document!) 😁

The topic at hand intrigued me, if only because I've got some local towns who were set up with both their deferrals and town contributions under the same contract with a recordkeeper. The employee amounts are on a 457(b) document and the employer amounts are on a 401(a) document but it's all combined on the platform. I consider the deferrals part of one trust and the rest the other.

How about making it part of his 2020 allocation then?

Gotta have rate groups passing, too. (Otherwise you'd just stuff all of what makes up that average into one NHCE who's 22 years old and terminated in January with wages of $500)

I know the answer isn't just an EBAR of infinity. I think the prevailing wisdom the last time I saw this was to treat him as getting 3%. Obviously 3% of $0 is 0, and it's certainly "reasonable."

I guess that's just referring to checking off "first return, amended return, final return, and short plan year"

That's right. Your excludable HCE can either test against the excludable NHCEs (none, so auto-pass), or he gets thrown in with the non-excludable HCEs and tested against the non-excludable NHCEs. (Which carves out the zero excludable NHCEs.) Obviously you have to just find the override spot in your testing software. (Assuming you want the guy out of your "main" test, although that guy's rate will lead you to make the call on that one.)

Isn't it just an amount ineligible for the rollover treatment, and it gets distributed / taxed just like any other test result would be?

How nuts is it to suggest that you'd only have to go back to the date of when the contributions were due to the plan as annual additions? Like maybe April 14, 30 days after the tax filing deadline, unless the plan specifically allocates the contributions each pay period. (My probably too-thin argument is that the ability for "early earnings" is a BRF, and perhaps if you've got 9/10 NHCEs getting early earnings, it's not particularly discriminatory for one guy not to get them.)

Keep an eye out for any other employees (non-doctors) that aren't allowed in under the same 6 month period, of course. Since 410(b) testing generally uses the lowest eligibility under the plan for everyone, you might inadvertently have a bunch of extra non-benefiters among your NHCEs. (Blah blah blah disaggregation etc.....)

At least the AFN language specifically says you can skip ex-participants who've been fully paid out by the end of the notice year.

Well that seems pretty easy indeed. Thanks!

My scenario: 2 business partners start a cash balance plan for themselves a few years ago (no employees). Partner 2 is given a 35,000 contribution credit each year, well below his 415 limit. One year, Partner 2 decides to deposit 50,000 instead of 35,000, figuring (a) it's deductible within the cushion amount, and (b) we could always amend the formulas later when the plan terminates so that his benefit is exactly what's in the portfolio. And then sure enough, corporate divorce between the partners at the end of 2019. Partner 2 has contributed a total of 120,000 for himself, but his actual cash balance benefit is only about 114,000, which is what he got paid a few weeks ago. So at first glance, too bad for him, especially if Partner 1 (now basically a sole proprietor, I suppose) has no intention of paying us to amend formulas for the other guy. But now, amid the "divorce proceedings", it sounds as though Partner 1 wishes he could have just paid the guy more from the plan. My question is, what's the typical methodology to increase a CB formula for someone who's an EX employee? Assuming Partner 2 has no service for 2020, what would be the typical way to write up an increase for him? He won't hit any kind of "hours of service" requirement to accrue more. I'm using ASC's checklist-formatted CB plan document, if that matters. Can I at this point increase his benefit either for 2020 (where there may be no service) or any of the prior years (where at least there was), such as to bring his benefits due up to an "appropriate" amount based on the 120,000 he put in? (Not fully up to speed on what sort of retroactive benefit increases we can orchestrate in a CB plan.) Thanks.... --bri

It's not perfect. I'd try to figure out the appropriate earnings, and transfer the excess+gain amount to forfeitures. Make the guy whole through payroll with some "negative 401k". And then use the excess (including those earnings) towards funding the new deferrals from subsequent checks. (So he doesn't specifically get the "benefit" of the market exposure on the extra amounts sitting in his account early.) Plan custodian may "freak" a bit about using the forfeiture account to fund deferrals. But that's not their problem.

I was pretty sure yes, and googling "loan default as rmd" actually brought me first to several prior discussions on these boards, as far back as 2004.

The documents my firm uses specifically defines the exception as "terminates employment after attaining Normal Retirement Age," so I'm lucky. The amusing scenario is when someone retires at, say, 66, gets a final contribution that year. Then is later rehired back part time, and doesn't hit the 1000 hours, so they can't get subsequent contributions until they actually re-terminate.

I've got something similar now. DB and DC plans terminated in November for a one-participant plan, rollovers occurred. DB plan still shows about 3,000 in residual dividends on 12/31 statements. Advisor is going to be backdating the transfers out from the accounts as of 12/31, but they will show as such on January statements. One aspect, from a TPA billing standpoint, is that because the DC plan was completely 0, and the DB plan was under 250,000, that the sponsor technically doesn't have to do a DB 5500-EZ for 2020, but would do a final DC for 2020 and a final DB filing for 2021. What's the typical IRS point of view on this? Do they get ornery if there are assets/liabiliies only netting to zero on a final filing, or do they not consider that legitimately "final"? I think for 1099 purposes, though, I can still show this all as a 2020 rollover. (Owner is taking the haircut, plan wasn't super close to his lump sum number.)

That's what alerted me to check around. Yeah, I couldn't find anything either. This'll be fun to explain to the advisor who ordered up the check tomorrow.